A Bank That Can Get Americans on the Road and on the Job: View

Aug. 11 (Bloomberg) -- Among the legion of problems facing
the U.S., two stand out: Unemployment remains appallingly high,
and the public works undergirding our economy are in alarmingly
bad shape. Creating a national infrastructure bank presents a
harmonized solution to these two problems that should be
feasible even in austere times.

Airports and transportation networks, levees and dams,
water and energy systems are deteriorating. The American Society
of Civil Engineers estimates that 25 percent of our bridges are
deficient, 7 billion gallons of clean water are wasted each day
because of leaking pipes, and a third of our major roads are in
poor or mediocre condition. The costs of all this to U.S.
businesses -- in delays, accidents, lost productivity, red tape
-- are enormous.

Yet improving such facilities adequately, the ASCE
estimates, would require a five-year investment of $2.2
trillion. If you’ve been within shouting distance of Washington
lately, you know that finding anything near such a sum is an
impossibility. So a revitalization program that doesn’t rely
entirely on federal munificence is crucial.

Enter the infrastructure bank, which would provide loans or
loan guarantees for big projects deemed to be in the public
interest -- and attract private investment by offering cheap
access to capital and a path to profit from tolls, fares and
other charges.

The bank could leverage the government’s outlay to lend
more. An initial $5 billion a year for five years could result
in $50 billion or more in loans. And because these loans would
be paid back with interest, the institution could become self-sustaining. Financing for such a bank should be seen as an
investment, not “spending.”

Replacing Jobs

The resulting projects would not only improve lives and
safety, but would also go some way toward replacing the many
construction jobs lost in the recession and housing meltdown.
Every dollar spent on public infrastructure yields a $1.59 boost
to gross domestic product, estimates Mark Zandi of Moody’s
Analytics.

There are many suggestions for how to structure such a
bank, including a Senate proposal sponsored by John Kerry,
Democrat of Massachusetts, and Kay Bailey Hutchison, Republican
of Texas, which earned the strange-bedfellow support of both the
AFL-CIO and the U.S. Chamber of Commerce. Representative Rosa
DeLauro, Democrat of Connecticut, has introduced a House bill,
and President Barack Obama has advanced a plan that mixes loans
and grants.

All these proposals have merits and deficiencies. Any final
version must contain a few critical elements that ensure that
the bank spends federal money efficiently and that there’s
little risk to taxpayers.

Critical Elements

It should have an independent board of directors that would
evaluate competing loan requests using a transparent cost-benefit analysis, thus avoiding pork-barrel political
machinations. Its board should be biased toward approving
projects that use intelligent congestion pricing and similar
user charges to produce a steady stream of revenue and help
ensure long-term solvency. It should be permitted to issue long-term bonds and to sell the loans it makes as securities in
capital markets. And, as a caution, it should require a
project’s sponsors and private investors to provide at least,
say, half the total cost.

It won’t be perfect. The gruesome tales of Fannie Mae and
Freddie Mac suggest the perils of independent financial
institutions that have implicit federal backing.(DeLauro’s bill
attempts to prevent similar problems by saying explicitly that
the bank will not be guaranteed by the government.)

Finding seed money will not be easy, but the costs of not
doing anything would be greater. The U.S. Chamber of Commerce
estimates that aging transportation infrastructure cost the
economy almost $2 trillion in 2008 and 2009. And reality will
keep intruding: Bridges and roads do not repair themselves, and
jobs do not magically materialize. In an era of diminished
national ambition, an idea that addresses two of the country’s
most persistent problems is a good investment.